Retirement fund booster in place? How big is the 401(k)?

Author: KarenZ, Foresight News

A capital battle over $12.5 trillion in retirement funds is about to begin.

This policy aims to allow alternative assets such as private equity, real estate, and cryptocurrencies to enter 401 (k) retirement accounts. It is not only a key step for the Trump administration in reshaping the rules of capital markets but also reflects the deeper logic of the American financial industry.

Trump to Allow Alternative Assets Like Cryptocurrency in 401(k) Plans

On August 7, according to Bloomberg, U.S. President Trump will sign an executive order on Thursday aimed at allowing private equity, real estate, cryptocurrency, and other alternative assets to enter the approximately $12.5 trillion 401(k) plan.

Bloomberg reported that a source, who wished to remain anonymous before the official issuance of the executive order, revealed that the order will instruct the Department of Labor to reassess the guidelines for alternative asset investments in retirement plans governed by the Employee Retirement Income Security Act of 1974. The department will also be responsible for clarifying the government's fiduciary responsibility stance regarding the provision of asset allocation funds that include alternative assets.

What is even more worth noting is the establishment of a cross-departmental collaboration mechanism. Trump directed the Labor Secretary to collaborate with the Treasury Department, the U.S. Securities and Exchange Commission (SEC), and other agencies to assess whether rule modifications are necessary to promote this work, and specifically requested that the SEC provide a convenient channel for participants in self-managed retirement plans to access alternative assets.

This kind of collaborative directive among multiple institutions is clearly aimed at breaking through existing regulatory barriers to pave the way for alternative assets to enter the retirement market on a large scale.

What is a 401(k) plan?

The 401(k) plan in the United States is not a traditional retirement fund plan, but rather a retirement savings plan provided by employers that allows employees to choose to have a portion of their wages deposited into an individual account under the plan for retirement savings. Additionally, employers typically also offer a certain percentage of matching contributions. The funds can be invested in low-risk assets such as funds and stocks.

In 2025, employees can contribute up to $23,500 per year, and those aged 50 and above can make an additional contribution of $7,500. Individuals aged 60 to 63 can contribute up to $11,250. Employer matching contributions vary by plan. The total contribution limit for employees and employers is $70,000 (there may also be other calculation methods). Early withdrawal of funds may incur a 10% penalty (unless specific exceptions are met), and withdrawals after retirement are taxed as ordinary income.

How big is 401(k)? What impact does it have on Crypto?

401(k) is the most prominent employer-sponsored retirement savings plan in the United States. According to a report released by the Investment Company Institute (ICI) in June of this year, as of March 31, 2025, the total retirement assets in the United States amount to $43.4 trillion (accounting for 34% of total household financial assets), of which individual retirement account (IRA) assets total $16.8 trillion. Americans hold $12.2 trillion in all employer-sponsored defined contribution (DC) retirement plans, with the 401(k) plan holding $8.7 trillion in funds.

As of the end of March, the total assets managed by mutual funds in the 401(k) plan amounted to $5.3 trillion, accounting for 61% of the total assets of the 401(k) plan. Equity funds are the most common type of fund in the 401(k) plan, holding $3.2 trillion (36.7%), followed by hybrid funds, which hold $1.4 trillion.

It is currently unknown whether the new executive order will limit the proportion, types, or cryptocurrencies for investment. However, once the policy is implemented, if 1% of the 401(k) $8.7 trillion funds flow into the crypto market, it will bring in $87 billion. If all of this is used to purchase Bitcoin, the demand will be for 748,000 BTC, while if all of it is for Ethereum, the demand will be approximately 22.6 million ETH.

The Dual Drive of Politics and Capital

This initiative is a continuation and upgrade of Trump's economic policy. According to Bloomberg, during Trump's first term, the Labor Department implemented a similar policy allowing retirement plans to include private equity, which was later revoked by the Biden administration. Now Trump is restarting it, expanding its applicability, and also attempting to clear obstacles through executive orders and coordination among multiple regulatory agencies.

Trump's move is not merely an economic decision; it is also aimed at continuing to garner support from Wall Street. Private equity and hedge funds have always been significant backers of the Republican Party. Easing the 401(k) investment restrictions means these institutions will gain a long-term and stable influx of capital. Additionally, Trump has recently made frequent statements supporting cryptocurrencies and proposed the establishment of a Strategic Bitcoin Reserve and a Digital Asset Stockpile. This policy directly addresses the core demand of the crypto community – to have the mainstream financial system accept digital assets.

Opening the "Pandora's Box" of Retirement Funds

The core of this executive order lies in breaking the investment boundaries of traditional retirement accounts. According to the Employee Retirement Income Security Act of 1974, the U.S. 401 (k) plan has long been dominated by traditional assets such as stocks and bonds, while alternative assets have been kept out due to their poor liquidity and complex valuation.

Supporters view this as a process of "democratization" in the capital markets, believing that it will provide the working class with an opportunity to share in the dividends of economic growth, while also injecting long-term stable funds into the alternative asset industry, and providing a mainstream opportunity for emerging assets such as cryptocurrencies.

For the working class, this executive order is both an opportunity to "break investment barriers" and a challenge of "risk spillover."

The essential property of retirement accounts is value preservation and appreciation, while the high risk of alternative assets fundamentally conflicts with this. These characteristics create a natural contradiction with the liquidity needs and risk tolerance of retirement funds. Most wage earners lack financial expertise and find it difficult to identify the real risks of assets, potentially relying on "packaged products" recommended by employers or financial institutions. Driven by interests, institutions may tend to exaggerate returns and downplay risks, leading wage earners to passively bear excessive risks in an environment of information asymmetry.

US Crypto Policy Combination Punch

The Trump administration has recently been intensively releasing friendly signals, establishing the first White House AI and cryptocurrency director, listing cryptocurrency as a national priority, creating a strategic reserve for Bitcoin, holding "Cryptocurrency Week," signing the stablecoin legislation "GENIUS Act," and publishing the report "Enhancing U.S. Leadership in Digital Financial Technology," forming a set of policy combinations.

The projects or companies led by its family members, such as World Liberty Financial (WLFI), American Bitcoin, and the social media platform Truth Social founded by Trump, plan to launch utility tokens, which further casts a shadow of vested interests over this policy reform.

It is worth noting that several states in the United States have previously proposed cryptocurrency reserve bill drafts, planning to authorize a portion of retirement funds, retirement systems, or public funds that include retirement funds to be invested in Bitcoin. Most states limit this investment ratio to 10%, but most bills have been rejected or are stalled due to recess.

The report "Strengthening America’s Leadership in Digital Financial Technology" released by the U.S. White House President's Working Group on Digital Assets at the end of July also discussed the state-level regulation of cryptocurrencies. Financial service institutions in some states have applied state money transmission laws to digital asset custodians and trading platforms, requiring intermediaries to register with the institution as money transmitters in order to provide services to clients located in those states. Some states exempt digital asset trading from money transmission laws, meaning companies engaged solely in digital asset trading may not be subject to licensing requirements in those states. Other states have established specific regulatory frameworks for digital assets. The report also pointed out that federal law should take precedence over state law when discussing the division of responsibilities among regulatory agencies, aiming for consistency in the applicability of securities and commodities-related regulations.

Summary

As the 401 (k) account evolves from a simple portfolio of stocks and bonds to a complex product that includes private equity and cryptocurrencies, financial literacy will become a key variable in determining the success or failure of investments. The ability of the regulatory system to establish effective firewalls to prevent the transfer of interests and systemic risks will be the ultimate test of the governance capability of the U.S. capital markets.

In front of a massive cake worth 12.5 trillion dollars, all participants are waiting for the final outcome of this capital game.